Reykjavík is the capital and largest city of Iceland. It has a
latitude of 64°08' N, making it the world's northernmost capital
of a sovereign state, and is a popular tourist destination. It
is located in southwestern Iceland, on the southern shore of
Faxa Bay. With a population of around 120,000 (and over 200,000
in the Capital Region), it is the heart of Iceland's cultural,
economic and governmental activity.

Reykjavík is believed to be the location of the first permanent
settlement in Iceland, which, according to Ingólfur Arnarson,
was established in AD 874. Until the 19th century, there was no
urban development in the city location. The city was founded in
1786 as an official trading town and grew steadily over the next
decades, as it transformed into a regional and later national
centre of commerce, population, and governmental activities. It
is among the cleanest, greenest, and safest cities in the world

History
The first permanent settlement in Iceland by Norsemen is
believed to have been established at Reykjavík by Ingólfur
Arnarson from Norway around AD 870; this is described in
Landnámabók, or the Book of Settlement. Ingólfur Arnarson is
said to have decided the location of his settlement using a
traditional Norse method; he cast his high seat pillars
(Öndvegissúlur) into the ocean when he saw the coastline, then
settled where the pillars came to shore. Steam from hot springs
in the region is said to have inspired Reykjavík's name, which
loosely translates to Smoke Cove (the city is sometimes referred
to as Bay of Smoke or Smoky Bay in English language travel
guides). The original name was Reykjarvík with an additional "r"
that had vanished around 1800.

Reykjavík is not mentioned in any medieval sources except as
being covered by farmland, but the 18th century saw the
beginning of urban concentration. The Danish rulers of Iceland
backed the idea of domestic industry in Iceland that would
stimulate much-needed development on the island. In 1752, the
King of Denmark, Frederik V, donated the estate of Reykjavík to
the Innréttingar Corporation; the name comes from the Danish
language word indretninger, meaning institution. The leader of
this movement was Skúli Magnússon (is). In the 1750s several
houses were built to house the wool industry that was to be
Reykjavík's most important employer for a few decades and the
original reason for its existence. Other crafts were also
practised by the Innréttingar, such as fisheries, sulphur
mining, agriculture, and shipbuilding.

The Danish Crown abolished monopoly trading in 1786 and granted
six communities around the country an exclusive trading charter,
Reykjavík was one of them and the only one to hold on to the
charter permanently. The year 1786 is regarded as the date of
the city's founding; its 200th anniversary was celebrated in
1986. Trading rights were still limited to the subjects of the
Danish Crown, and Danish traders continued to dominate trade in
Iceland. Over the following decades, their business in Iceland
expanded. After 1880, free trade was expanded to all
nationalities and the influence of Icelandic merchants started
to grow.